Inflation Expectations Are Rising

The 5-year breakeven inflation rate—which represents the market's expectation of average inflation over that period—is steadily rising once again.

Currently, the market expects average annual inflation of 2.6% over the next five years.

At its peak in 2022, the market expected inflation to average 3.28% per year over the forward five-year period. Over the past three years, inflation has averaged 4.96% per year.

Higher expected inflation means the Fed will keep interest rates elevated, and investors will demand a higher rate of return on their investments—potentially driving down asset prices in the short term.

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